#Business : Full fiscal autonomy would be 'disastrous' for Scotland after fall in oil price

Full fiscal autonomy would be 'disastrous' for Scotland after fall in oil price.

Scottish Affairs Committee says Smith Agreement on new powers offers best of both worlds.

The SNP’s call for full fiscal autonomy would be “disastrous” for Scotland following the collapse in the oil price, according to MPs.

The Scottish Affairs Committee said the Scottish Government’s policy would cut Holyrood’s budget by billons of pounds and expose the country to “risks and shocks”.

The warning is contained in a report welcoming the Smith Agreement on more powers - the deal on extra devolution that followed the independence referendum - as the “best of both worlds”.

It said that under full fiscal autonomy, which Alex Salmond claimed would be the price of a deal backing Labour in a hung parliament, Scotland would lose £8 billion in additional funds delivered via the Barnett formula, which is used to calculate Scotland’s block grant, while replacing the system with volatile oil revenues.

The report said the policy would result in Scotland would benefiting from any better than expected revenues from taxes that are currently reserved, but also bearing the consequences “were such revenues to collapse”.

It added: “As the recent fall in the oil price demonstrates, such a scenario is not fanciful and without the protection of the wider and more diverse UK economy the consequences for Scotland would have been disastrous.

“The Barnett formula gives Scotland more resources than its share of population currently warrants: in 2012-13 this was worth £8 billion to the Scottish Government, equivalent to approximately £1,500 per person.

“Full fiscal autonomy would result in the loss of this transfer and, without sufficient oil revenues to mitigate such a loss, a sizeable fiscal gap would be created that would need to be filled by increased tax revenues, cuts to public spending, increased borrowing or a mixture of all three.”

The report, published today, said the decision of the Smith Commission not to recommend full fiscal autonomy - generally regarded as control over everything other than foreign affairs and defence - had already proved to be a wise decision with obvious benefits.

It estimated that the SNP demand would create a £6.5 billion hole - about half Scotland’s annual health spending - in the Scottish Government’s budget.

Elsewhere, the committee said the Scottish Government's insistence that Westminster had written a right of veto into the new devolution settlement was "ludicrous".

The SNP administration claims the draft law transferring new powers to Scotland contains "12 vetoes" where the UK Government can stifle the will of the Scottish Parliament.

But the report dismissed the allegation while saying it was disappointing that the UK Government had “failed adequately to rebut such claims”.

It added: "The Scottish Government has sought to conflate the need for consultation between governments, a basic requirement for good governance within a framework of devolved and central government, with the idea that the UK Government could impose restrictions."

The new powers mean that for the first time the majority of the money spent by the Scottish Parliament will come directly from revenues raised in Scotland, while significant powers on welfare will be devolved, including the ability to increase every benefit.

Ian Davidson, the committee chairman, said: “This transfer of powers and resources to the Scottish Parliament is very welcome, and strikes the right balance between our twin desires: for both further devolution and financial security, while also respecting the referendum decision.

“Now we need to hear what should be done with these new powers, particularly the opportunity to increase, by any amount, each and every benefit and to change all tax rates and bands.”Angus Robertson, the SNP leader at Westminster, said the debate in Scotland was about how to get the maximum power for Scotland as soon as possible to counter Westminster’s continued austerity programme.

Angus Robertson, the SNP leader at Westminster, said the debate in Scotland was about how to get the maximum power for Scotland as soon as possible to counter Westminster’s continued austerity programme

He added: “The limited powers recommended by the Smith Commission do not live up to the pre-referendum rhetoric of the “Vow” from the Westminster parties.”